Working Out the Kinks

Telecommunications reform in Texas might be a microcosm of national reform.

State and federal telecommunications laws have long put telephone and television into their own little compartments, a regulatory mechanism that's created two distinct markets in which companies could compete.

You could sell telephone services, or you could sell TV -- but not both. Those laws don't work so well anymore.

Engineers continually redefine and rebuild the chips that power the servers, routers and switches that orchestrate the staggering volume of data traveling the Internet. Software developers constantly refine and rewrite the code that reduces a world's worth of information to two bits -- the ones and zeros that can be whatever you want them to be.

Because of the almost daily transformations in the way those ones and zeros are delivered to whoever wants them in unlimited combinations, telephone companies can use their wires to sell TV, and cable companies can use their wires to sell telephone service.

As a result, state and federal lawmakers have been forced to re-examine old telecommunications laws that no longer apply in today's world. When Congress passed the Telecommunications Act of 1996, the bill was the first major overhaul of telecommunications law in almost 62 years, according to the FCC.

State legislatures also acted to reform telecommunications law, and a recently passed measure in Texas may well set a national precedent.

Heavy HittersIn 2005, the Texas Legislature passed SB 5, a major telecommunications reform bill that turned traditional competition in the state inside out.

Perhaps the bill's most controversial component is the decision to award the state's Public Utility Commission (PUC) the power to grant statewide cable and video franchise agreements to phone and cable companies. The power to grant these franchise agreements had long been in the hands of local governments, and the bill generated fierce lobbying in the state Capitol.

According to one local news report citing Texas Ethics Commission records, telecommunications giant SBC (now AT&T after a merger in late 2005) alone spent between $3.4 million and $7 million during the 2005 legislative session in contracts with 112 lobbyists. Telephone companies argued that the existing regulatory environment didn't allow them to effectively compete in the marketplace.

Additionally, the news report said, the Texas Cable and Telecommunications Association (TCTA) and big cable companies, such as Time Warner, Cox Communications and Comcast together spent between $1.1 million and $2 million during the 2005 session to lobby Texas lawmakers.

Though not all of that lobbying effort focused on SB 5, both sides had a very large stake in the bill's success or failure.

On Sept. 8, 2005, the day after Gov. Rick Perry signed SB 5, the TCTA, seeking to overturn the bill, filed a lawsuit in U.S. District Court to mount a legal challenge against it. In January 2006, to create a second front, the TCTA filed a second lawsuit with a state district court.

A TCTA spokeswoman said the group opposes the legislation because Texas is treating similar businesses differently. Because it allows telephone companies to operate under less strict regulations, the suit against SB 5 alleges that the law denies cable operators' rights that are protected by the Texas Constitution, the TCTA said.

Legislators also approved a new class of competitors to telephone and cable companies. These new entrants rely on broadband over powerline (BPL) technology to sell the same services -- TV, phone and Internet access -- as telephone and cable companies.

Betting the Franchise?The power to issue franchise agreements has historically created a steady revenue stream for local governments through the fees cable companies pay as part of the agreements.

Under the bill's terms, cable providers will pay cities 5 percent of the provider's gross receipts earned within the city limits, and an additional 1 percent to support PEG channels, said Scott Houston, director of legal services